Discuss the Importance of Credit in Detail

If we could not deny the importance of money in business, then we can also never deny the importance of credit in business. Since the supply of money is the lifeblood of a borrowing economy, there are two sources which meet the capital requirements of the business. These are the savings of the people and commercial banks. Probably these Commercial Banks take the savings of money and borrowed them to the needy people as well as the businessmen.

Importance of Credit for Country

Below are the few points, which tells the importance of credit for country and how credit the make the economy strong.

1. Credit enables the individual or business to “purchase ahead of ability” or “desire to pay”.
2. The economic needs of agricultural, commercial and industrial sector of the economy are adequately met by the bank credit.
3. Bank credit accelerates the process of economic development in the country by providing loan to the industries in time.
4. Goods are purchased, processed, store and then sold at the appropriate time to consumers.
5. The farm credit needed by farmers helps in increasing agricultural production in the country and helps the farmers in the development of agricultural.
6. Bank credit facilitates the large scale production of goods and other necessities of life, which result in technological research and lowering the cost.
7. From the bank credit, the transportation of commodities from one place to another place is also made easier and economical.
8. The consumption needs of the consumers such as automobile, house and other necessaries are also met by the commercial credit.
9. Supply of credit by bank to consumers and business, increases the rate of economic growth, which would have been limited with the savings of the people.
10. The rate of interest is also influenced by the bank credit. The flexibility of bank credit regulates the rate of interest which has healthy effects on the production in the economy.
11. Credit instruments, like bill of exchange, greatly facilitate international trade. Payments thus made without the actual movement of treasure to any large extent.
12. With the help of credit, people with brilliant brain can utilize their abilities and qualities in running business enterprises. In the absence of credit, their talents would have gone waste.

Importance of Credit for Business

As w know that in cash transaction, the value of anything paid at once. But in case of any credit transaction the value is paid after some specific period of time. Thus, it shows the importance of credit for business. However, making payment after some time, this facility is allowed to only trusted persons. Hence credit involves two factors that is “Time” and “Confidence”.

If we work around our world, we will see that almost all the business dealings and other transaction are made on credit basis instead of cash. The credit system is becoming more popular replacing the use of money or cash day by day. In daily affairs, the goods and vehicle are bought and sold in the credit form, which is just a “Promise” to make the payment in “Future”. These payments are made in credit though different kinds of instruments, like cheque, bill of exchange and promissory note, etc. The importance of credit can be seen from the following points for business.

1. Convenience in purchase and sales of goods though credit enables the consumers to purchase ahead of his ability.
2. Through availability of credit, new business enterprises came into existence using their abilities effectively.
3. There can be an economy in the use of metal money by using the credit money. Credit money is more safe and convenient than metal money.
4. With the help of credit, government loan are available. These funds are used for the construction of projects for the use of general public.
5. Now the production is carried on large scales. It is only possible when credit money is also available for over and excess funds for production. This is show the great importance of credit for business.
6. Credit also help in overall production of goods in the country. The producers engaged in different type of production process can avail the facility of credit for their financial requirements.
7. In international trade, the payments are made though bill of exchange, instead of making in cash or gold. This also enhances the importance of credit for business world.
8. The credit money also helps to keep the prices in a stable position. Increase in money supply though credit increase the output of goods and services.
9. Credit also results in improving the living standard of the peoples. When money supplies total increases, income and per capita also increases, then ultimately it leads to a good living standard.
10. If the government is facing a deficit in her expenditure the shortfall can be covered by the sales of bonds. It is only possible though credit system.